What women want: Maximized Social Security benefits

Nearly 60 percent of people receiving Social Security benefits today are women.1 While financial advisors can help all investors to navigate the complexities of Social Security, I would urge you to work with your female clients to be especially proactive about maximizing Social Security benefits. This is because women can face several complicating challenges when it comes to financial security in retirement: they tend to earn less and live longer. This less-than-ideal combination means that many women may be at a greater risk of outliving their retirement income assets than men.

Social Security for her

As you likely know, Social Security benefits are calculated on an individual’s 35 highest-earning years in which they paid Social Security payroll taxes.2 Consider what this means when women working full-time in the U.S. still make 79 cents for every dollar earned by men.3 Women also spend an average of 11 years out of the workforce to care for children or parents, which often results in lower wages.4  As a result of these factors and others, women tend to receive a lower Social Security benefit than men. In 2013, the average Social Security benefit for women 65 and older was about $12,700 per year, compared to about $16,700 for their male counterparts.5 Women also tend to have longer lifespans than men and their dependence on Social Security benefits is likely to increase with age.6 A recent study found that among women age 65 – 69, 21 percent rely on Social Security for 90 percent or more of their income. That figure nearly doubles to 38 percent for women 80 and older.7 So if women tend to live longer, receive less Social Security income and have a greater need for that Social Security benefit, what are they supposed to do? The key is ensuring all potential sources of retirement income are working hard for investors, including a maximized Social Security benefit. Here are a few key points to raise in your next conversation with clients on this topic.

Understand the power of patience

One of the most common mistakes investors make about Social Security is not being strategic about when to claim their benefits. When an individual reaches full retirement age (FRA), he or she becomes entitled to 100% of their benefit amount. If an individual claims his or her Social Security benefits before that time, they are effectively locking in a reduced benefit for life. But investors who defer claiming benefits beyond their FRA can accumulate an 8 percent Delayed Retirement Credit every year until they are 70.8 Consider the example below, where waiting until age 70 to claim instead of 66 translates into an additional monthly benefit of $320. If an individual waits until 70 to claim instead of claiming early at 62 the benefit is even more pronounced — an additional $570 per month! Social security monthly benefit amounts Source: When To Start Receiving Retirement Benefits. SSA Publication No. 05-10147, January 2015. Assumes both individuals are born between 1943 –1954. This information is provided for illustrative puposes only. When you look at an example like this, waiting to claim seems like the obvious choice. But in 2013, just one in ten investors filed for Social Security benefits at an age beyond their FRA.9  As an industry, I think we can do more to educate investors about their options and ensure they have other income streams to draw from before their FRA.

Be smart about survivor benefit strategies

My grandmother lived to be 92 and my great-grandmother lived to be 99 — both outliving their husbands by nearly 25 years. Perhaps that’s why I always encourage advisors to think about an area of Social Security education that often gets overlooked: the intersection between deferred claiming strategies and survivor benefit strategies. So how do you maximize those benefits now that the days of “file and suspend + restricted application” are over for many investors? There are many nuances to spousal and survivor benefit claiming and you would of course tailor recommendations to your clients’ circumstances, but let’s consider a very simple example with a hypothetical married couple, Kathleen and John. Let’s say that Kathleen has a lower lifetime earnings record than John, which means she has a smaller Social Security benefit. Kathleen claims her benefit at her FRA of 66 so she can provide an income boost to the household while John’s check continues to grow until he reaches age 70. Then, John files for his maximized benefit, providing the most possible income for the couple and a healthier survivor benefit for Kathleen if he passes away before her. Research suggests that an individual can increase the monthly benefit for a surviving spouse by more than 60 percent if he or she claims at age 70 rather than 62.10 Cue the broken record: the key here is waiting to claim!

Put all sources of income to work for your clients

The flip side of waiting to claim is ensuring that other diversified, sustainable retirement income strategies are employed within a portfolio to support investors’ needs. As an advisor, you can help clients balance the income needs of today with the income needs of tomorrow while enabling them to maximize their Social Security benefits. This can result in better outcomes for clients as well as opportunities for you to increase client satisfaction and even generate referrals by acting as a valuable resource.

The bottom line

Help your clients, men and women alike, understand that the decisions they make early in retirement about Social Security can have a major impact on the benefits they or their spouse will receive for many years to come.

1 Source: “Social Security: What every woman should know.” Social Security Administration. February 2016.

2 Source: “Your Retirement Benefit: How It’s Figured.” Social Security Administration. 2016.

3 Source: “Pay equity and discrimination.” Institute for Women’s Policy Research. 2015.

4 Source: “Connecting with the women in your workforce.” Joe Coughlin, MIT AgeLab, September 2014

5 Source: “Women and Social Security.” National Women’s Law Center. September 2013.

6 Source: Calculators: Life Expectancy. Social Security Administration.

7 Source: “Women and Social Security.” National Women’s Law Center. September 2013.

8 Note: Those born in 1943 or later are eligible for an 8% delayed retirement credit, while those born before may receive a different amount. Source: Retirement Planner: Delayed Retirement Credits Social Security Administration.

9 Source: Center for Retirement Research at Boston College, as cited in “Just 1 in 10 Seniors Is Making This Social Security Move -- And That's Worrisome.” Motley Fool.

10 Source: “The Social Security Claiming Guide.” Center for Retirement Research at Boston College.